Consumer Credit Borrowing Increase

According to the BBC, the Bank of England has enforced new action to deal with bad loans, forcing banks to set aside £7.5 billion in the next few months to compensate for any money lost from borrowers who cannot repay their loans.

The Bank’s Financial Policy Committee (FPC) have been looking further into the increasing amount of borrowers from banks, concerned that banks are lending too much money while being dependent on the notion that the borrower will pay back the amount. They have noted this has even been the case with customers with a weaker credit record.

In the past year, consumer credit borrowing has grown by 10% which exceeds the growth of incomes. The amount written off because of being unpaid is ten times the amount written off for mortgage lenders as it is a less reliable source of repayment.

New measures in the form of a “stress test” should deter banks from getting around key tests to stop them lending too much, and to test their ability to cope with the potential situation of borrowers not being able to repay.